Bill would reduce amount of teacher pensions that is taxed

Hartford - The Finance, Revenue and Bonding Committee on Thursday held a public hearing on a bill that would provide an income tax break to retired teachers collecting state pensions.

A pension tax cut for teachers was first proposed by Gov. Dannel P. Malloy, and state officials said at the hearing that they supported it.

Proponents said the bill was fair because teachers' retirement benefits - primarily their state pensions - are fully taxable, whereas most other employees receive Social Security benefits that are not always taxed.

Under Senate Bill 28, teachers would pay taxes on 75 percent of their pensions this tax year. In fiscal year 2015, that amount would be reduced to 50 percent.

"While not exactly even, because it is a different system, we think providing a 50 percent exemption provides general equity with other people who are receiving pensions alongside Social Security," Malloy's budget chief, Benjamin Barnes, told the committee.

Increasing the amount of money retired teachers get to keep and spend means the state would lose about $23.4 million in revenue a year. But Department of Revenue Services Commissioner Kevin Sullivan said the bill addresses an inequity in the taxes teachers pay as opposed to other retirees and that discussing tax relief measures is a sign of an improving economy.

"I think it is a measure of how far Connecticut has come in just four years," Sullivan said, "that you are able to be here, having these discussions about how to get money back to taxpayers."

In 2011, the Malloy administration pushed for, and the General Assembly passed, one of the largest tax hikes in state history - $1.5 billion.

As of calendar year 2012, there were 32,475 retired Connecticut teachers. Teachers received on average a $47,000 annual pension that year, according to data from the Office of the State Comptroller. Under the proposal, only $23,500 of that amount would be taxable.

Robyn Kaplan-Cho, retirement specialist for the Connecticut Education Association, a teachers union that represents about 43,000 people, said the CEA supports the bill.

"It clearly makes good sense from both a parity and an economic standpoint," Kaplan-Cho said.

Michael Norman, legislative chairman of the Association of Retired Teachers of Connecticut, said his group has been advocating for a pension income tax break for years. "With the high cost of insurance and other living expenses, retired teachers need some form of financial relief," he said.

Teachers' pensions have not kept up with inflation, and many leave Connecticut for another state that does not have an income tax, Norman said.

Senate Bill 28 also includes tax cut measures such as an insurance premium tax cut for municipalities, extending a tax credit for angel investors or people who invest in start-ups, and a sales tax exemption for over-the-counter drugs. In total, the tax cuts would amount to a loss of $53.3 million in revenue in fiscal year 2015, Barnes said.

If the bill is voted out of committee and approved by any other pertinent committees, it would head to the floor of the House and Senate for votes later this legislative session.